Fed's MBS Buying Spree Delivers Mixed Results at JP Morgan

The Federal Reserve's plan to buy an unlimited amount of mortgage securities until jobs rebound has helped contribute to higher trading volumes at JP Morgan Chase but the promise to keep rates low through at least mid-2015 has hurt the investment bank's margins, Chairman and Chief Executive Jamie Dimon said during a Oct.12, conference call.

Indeed, JPMorgan's net interest margin fell to 2.43% in the quarter, from 2.66% a year earlier. That puts a squeeze on profits, as do revenue trends. Though JPMorgan's quarterly revenue rose nearly 6%, fee-based businesses like investment banking and mortgages were primary drivers. Loan demand was modest; JPMorgan reported $721.9 billion of loans, up 4% from a year earlier and down nearly 1% from the previous quarter.

Executives sought to be upbeat. JPMorgan can grow lending on "jumbo [mortgages] …and we think they are very good credits going forward and you can see we are growing the commercial bank," Chief Financial Officer Doug Braunstein said during a Friday conference. "We are growing auto; [credit] card we hope to grow. … We want to push the loan growth a little bit."

Tight margins require constant adjustments in decision-making for lending and other parts of the business, Dimon said. "There have been a lot of changes in the business," Dimon said. "We've got to adjust to those changes."

JPMorgan originated $47 billion of mortgages in the quarter, up 29% from a year earlier. Investment banking was strong as fees rose to $1.4 billion, on higher fees for debt and equity underwriting and advisory services.

Those two areas helped push net income to a record $5.7 billion, or $1.40 a share, a 34% increase from a year earlier. Analysts had expected $1.20 per share, according to Bloomberg.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.